What would you do? What are my options? Selling current home & Buying new one

[Brandon C.]

I have a unique situation, and since you all are experts in the real estate world, I wanted to get the opinion from knowledgeable neutral parties. Appreciate you taking the time to read my post.

My wife and I live in the Nashville area and have been in our home for about 10 years. We explored selling the home about a year ago. We were going to list for about$165k-$170k. Currently we owe $60k.

Our house is great. We love it. However, the neighborhood is slowly declining. If you ignore the couple yards that are mowed twice a year and the lovely new neighbors across the street that have a rusty old trampoline in their front yard, we could probably stay in this home for a few more years. We have no homeowners association or anything so there’s not much I can do. Every time I turn onto our street I feel like I see dollar bills flying out of our home.

Last year when we looked at moving, we went through the loan process. Our credit score was 738. I’m about to accept a new job that will increase my salary. My wife has been staying home with the kiddos for the past 5 years, but just last week accepted a teaching position that will pay about $35k starting in Sept. This will put our combined income around $110k. Last year we were approved for a loan of $300k. Loan officer said we could go much higher, but I wanted it capped at $300k. Financially, I think we are ok. Right now, we are in savings mode to boost all of our cash, and this will continue till we get settled in our new home. We have no debt except for a car payment that we’ve been paying down on. We do have about $140k in retirement accounts, but I believe we are restricted from using that, and I’d prefer not to.

The plan has been to start looking at moving in May of 2015. Next May, I will receive a $50k lump sum payment from an annuity settlement. I know it’s best to take the lump sum rather than annuities but my parents’ chose this years ago, and I can’t change it (I just spoke with the ins company).

We are in no hurry to move. I want to make sure we find the right house for us, because we will probably be in it for a while (hopefully). I’m fine if we officially begin the search and it take 10 months before we find our house. Therefore, I don’t want to put our house up for sale until we have a home. I’m ok carrying two house payments for a while. I DO NOT want to sell our home, move to an apartment for 3 months and then on to another house.

I always assume the worst case scenario. I have this crazy feeling, my wife and I will find the perfect house in January. Sure, we could tap our emergency savings and put a little down on the house, but I wouldn’t want to deplete saving too much. We are looking at homes priced between 225k-300k, but prefer to stay under $275k.

My questions are – What are my best and cheapest options to get $50k or so to have available to put towards a house should we find one before May of 2015?

Here are the options I think I have:

1)Take out a home equity loan for $50k and set it in a savings account in case we find a house. CONS – Expensive fees, and I believe there are prepayment penalties. I would pay this loan off as soon as our house sells, or May 2015 arrives.

2)Refinance the house, for ~$120k and set the $60k in savings. CONS – I assume this is possible, not sure if this is overly expensive.

3)Put down $10k-15k, and then when the house sells, throw all that money towards the mortgage, and then next May do the same with that money. Once we pay down enough to have 20% equity, the PMI will fall off. Latest this would happen would be May of next year. CONS: Not sure if I can put that little down towards a house.

4)Refinance the house, for ~$120k and set the $60k in savings and use it to put towards the next house. Then RENT our current home instead of selling it. I spoke with a property management company and they estimated I could get $1,325 a month for my home. The concern I have is the declining neighborhood.

5)Not do anything until May 2015.

Again appreciate your help!!